A Novartis researcher examines pills as part of testing for color, form, and quality at the company's St. Johann site in Basel, Switzerland.

Credit: Novartis

Regular Checkup

A Novartis researcher examines pills as part of testing for color, form, and quality at the company's St. Johann site in Basel, Switzerland.

Credit: Novartis

In the wildly popular "A Series of Unfortunate Events" books, targeted primarily to preteens, each book begins by warning the reader to shelve the woeful tale and find something more pleasant to read. For example, in the seventh book, "The Vile Village," the author, Lemony Snicket, writes: "And if you insist on reading this book instead of something more cheerful, you will most certainly find yourself moaning in despair instead of wriggling in delight, so if you have any sense at all you will put this book down and pick up another one."

In many ways, the 2007 pharmaceutical market might be characterized as another series of unfortunate events. And like Snicket's protagonist, Violet, the pharmaceutical industry has been forced to turn to new ways to adapt to adversity.

For example, this year drug companies have implemented new profit-boosting cost-cutting measures, refocused business units, and formed more alliances aimed at beefing up less-than-robust pipelines. At the same time, big pharma has accelerated into high-growth market segments such as biotechnology, specialties, and the emerging regions of the world.

In addition, pharmaceutical producers seem to be generating sales growth—albeit moderate—from volume increases and new-product introductions, rather than just from price increases, which "could be considered a healthy sign for the pharmaceutical market," according to Diana Conmy, corporate director of Market Insights at IMS Health, a provider of market information, intelligence, and strategic consulting services for the pharmaceutical and health care industries.

Participants in the U.S. market, by far the largest global drug market, continued to benefit from slight demand growth stemming from the introduction of Medicare Part D, a federal program that began providing drug benefits to senior citizens last year. In 2006, the Part D program contributed an incremental 12% to the absolute growth in sales in the U.S., reflecting a flood of new enrollees, Conmy says. In 2007, this program is expected to contribute just 4% to U.S. absolute dollar growth due to new patient access to the program, she adds. "So while that strong jump in growth was a one-time event, the program will continue to contribute a substantial share to the U.S. market."

Still, these revenue-boosting factors were offset by a series of antagonistic events and pressures that continue to plague the global pharmaceutical market. As a result, pharmaceutical sales are expected to grow between 6 and 7% to $695 billion to $705 billion in 2007, slightly slower than 2006's 7% growth, according to IMS Health figures.

Concerns about drug safety have only increased this year, further limiting the market potential of many new drug compounds. On the regulatory front, "the bar is being raised along the lines of asking for more evidence-based medicine, more health outcomes, and more commitment to do Phase IV postmarketing studies around safety," according to Dave DeMarco, global account leader at Ernst & Young's Global Pharmaceutical Center.

Concurrently, generic competitors have tightened their grip on branded pharma, pouncing on markets opened up by another wave of expirations of patents for drugs, including high-margin blockbusters.

By the end of 2007, marketed products with a combined value of about $20 billion will have lost patent protection, on top of more than $19 billion worth of products that lost protection in 2006, according to IMS Health figures.

Pfizer counted the loss of U.S. patent exclusivity for the antidepressant Zoloft (sertraline) and the antihypertensive Norvasc (amlodipine) among its most difficult challenges in 2007.

Novartis was also hit hard this year, losing market exclusivity on Lotrel (amlodipine and benazepril), used in treatment of hypertension; Lamisil (terbinafine), used in treatment of foot fungus; and Trileptal (oxcarbazepine), used in treatment of epilepsy. "So in terms of dealing with the aggressiveness of generic companies, it has been a tough year for us," says Paulo Costa, president and chief executive officer of Novartis Corp., the North American arm of Novartis AG.

Not surprisingly, from June 2006 through June 2007, the generics market grew approximately 14% in the top eight world markets ranked by sales—the U.S., Japan, France, Germany, the U.K., Italy, Spain, and Canada—to reach $58.5 billion as a whole, IMS Health figures state. That's up from the same period a year earlier, when combined sales of generic drugs in the top eight markets grew 9.2% to $49.7 billion.

That growth in generic drug sales is also being fueled in part by managed care groups' push for high utilization of generics under Medicare Part D in the U.S., Costa notes. Right now, in excess of 55% of all prescriptions filled are for generics, but within Medicare, the number is in the low 60% range, Costa says.

And generics growth is expected to continue to accelerate in the coming year, with another $20 billion in combined sales of branded drugs expected to be coming off patent during 2008, according to IMS Health data. The top four products set to go off patent in 2008, the consulting firm says, are Johnson & Johnson's schizophrenia treatment Risperdal (risperidone), Merck & Co.'s osteoporosis drug Fosamax (alendronate), Johnson & Johnson's migraine prevention drug Topamax (topiramate), and GlaxoSmithKline's Lamictal (lamotrigine), which is used to treat bipolar disorder and epilepsy.

Pharmaceutical companies face the loss of an estimated $90 billion of sales to patent expirations from 2007 through 2010, which will inevitably attract more competition from generics, IMS Health's Conmy points out.

But branded pharmaceutical companies are fighting back. One way they are continuing to boost their franchise, while simultaneously managing the life cycle of their products, is by introducing new formulations of products going off patent, Conmy notes.

For example, Sanofi-Aventis launched Ambien CR, an extended-release version of its sleep aid Ambien (zolpidem), which went off patent in the U.S. in April. The company reports that Ambien CR "is showing strong resistance to the presence of Ambien IR generics," with third-quarter net sales reaching $176 million in the U.S.

Likewise, in March, GlaxoSmithKline began marketing Coreg CR, a once-per-day extended-release version of its Coreg (carvedilol), a twice-per-day β-blocker used to treat cardiovascular conditions, which lost patent protection this year.

Even while fending off a growing legion of generics competitors, branded pharmaceutical companies have also had to deal with "heightened levels of safety awareness," Conmy says, adding that IMS Health has observed "a number of events that characterize the environment in 2007 as one of further caution." This trend is being driven not only by regulatory agencies but also by "third parties who are getting their hands on data and coming up with conclusions about the safety of various drugs through independent meta-analysis," she adds.

Furthermore, IMS Health expects to see more independent meta-analysis-which combines the results of studies that address research hypotheses-of broadly used drugs throughout 2008. Novartis' Costa says there's no question that the regulatory authorities are "becoming increasingly risk-averse, a trend that has really impacted us in 2007."

Costa believes that these changes were sparked by Merck's late 2004 withdrawal of Vioxx (rofecoxib) pain reliever from the worldwide market after a third-party group found it to contribute to increased risk of serious thrombotic cardiovascular adverse effects. "Afraid of being criticized by government bodies, by the press, and by the public at large, regulatory authorities-particularly the Food & Drug Administration-are now digging deeper, asking more safety questions," Costa adds.

Bank of America analyst Christopher T. Schott draws the same conclusion. "FDA's increased conservatism can in some ways be brought back to the widespread criticism brought on the agency by the Vioxx debacle. Since that episode, it seems that the safety-and-efficacy trade-off, at the crux of FDA's decisions, has clearly tipped toward safety."

And as a result of the enactment of the Food & Drug Administration Amendments Act of 2007 in September, the agency will soon gain even more control over drug safety (see page 33).

Pharmaceutical manufacturers, however, are already being hit by increased warnings as well as restrictions that have slowed the flow of new drugs onto the market. "FDA advisory committees are more concerned and cautious about their recommendations," concedes Raymond Woosley, president of the Critical Path Institute, which helps FDA with its review process. But other factors also contribute to the declining number of new drugs approved, he says. "Fewer drugs are being submitted for approval because more are failing in development." In addition, "The high litigation costs of postmarket safety problems have made companies more cautious and comprehensive in their testing," he notes.

For its part, FDA continues to rely on the science that is available. "And that science is increasingly indicating that we need better tools to predict the safety of medications" in the preclinical, developmental, and postmarket stages, Woosley adds.

In its increasing focus on safety, "FDA is being more particular about what it would like to see in trials," observes Jeff Steinberg, global risk advisory services leader for the the pharmaceutical sector at Ernst & Young. "And a number of pharma companies have had disappointments with respect to drugs and new molecular entities that were either outright rejected or were sent back to the drawing board."

By Schott's estimation, an increasingly cautious FDA has raised the hurdle for approval of New Drug Applications (NDAs), with a lower percentage of drugs approved in 2007 than in prior years. Thus far in 2007, FDA has approved only 42% of pharma NDAs, down from an industry average of 54% between 2004 and 2006. At the same time, the average time for an NDA approval has been on the rise, "delaying and decreasing the incremental impact of late-stage pipelines on earnings," he says.

For example, in June, Sanofi-Aventis withdrew its application for its antiobesity drug, rimonabant, when an FDA advisory panel did not recommend approval after raising questions about the drug's potential psychiatric side effects. The company is working to address FDA's questions and reapply for approval. Approved in 52 countries and commercialized in 21 as Acomplia, the drug was to be called Zimulti in the U.S.

Novartis, too, suffered a setback this year in its efforts to usher Galvus (vildagliptin), an oral type 2 diabetes treatment, through regulatory approval after FDA raised concerns over its possible skin toxicity.

Part of the problem is that "FDA is asking more hypothetical questions than it has in the past," says Novartis' Costa. "Despite the fact that we didn't see any evidence of skin toxicity in our very large clinical program involving about 5,000 patients taking Galvus, we must now engage in long-term clinical trials to prove that the skin toxicity observed in animals is not happening in humans. In short, we are going to have to disprove that hypothesis."

FDA's decision with regard to Galvus is "the most visible example" of the agency's more conservative move to delay approval of NDAs with strong efficacy because of relatively minor side effects, Schott says. "A less conservative FDA would likely have approved Galvus and dealt with this safety issue in the product's label."

As it reviews applications for new products, FDA has "tipped toward safety for pipeline products that target therapeutic categories where similar therapies are already available," Schott observes. "Although still conservative, FDA appears to be making more balanced decisions in the case of novel drugs that offer new approaches to disease management or significant improvement over currently existing therapies."

A number of regulatory bodies, including FDA and the National Institute for Health & Clinical Excellence in the U.K., are also becoming more cautious with products that are already on the market.

Since 2003, IMS Health has observed increased levels of FDA-issued "black-box warnings"—the most severe type of warning that precedes FDA's removal of a product from the market. Black-box warnings are designed to provide physicians with insights as to how to prescribe a drug that may be associated with serious side effects in a way that maximizes its benefits and minimizes its risks.

In 2006, FDA issued roughly 60 black-box warnings compared with about 49 in 2005, according to IMS Health. This year, FDA issued approximately 45 black boxes through August, which compares with about 49 through August of 2006, "so they are right about neck and neck," Conmy notes.

In August, for example, manufacturers of certain drugs approved to treat type 2 diabetes, including GlaxoSmithKline's Avandia (rosiglitazone), followed FDA's request to add a stronger warning on the risk of heart failure. The move followed the report of findings from Steven Nissen, the Cleveland Clinic cardiologist who first raised concerns about the safety of Vioxx. Then last month, GlaxoSmithKline said it would again revise its U.S. product label for Avandia on the basis of an FDA review of data that was inconclusive in showing an association between the drug and an increase in myocardial ischemia events.

Sometimes FDA goes a step further by suggesting that certain products be taken off the market due to safety concerns. According to the agency, there were no market withdrawals of drugs or biologics for safety reasons in 2006, but three have been pulled so far in 2007.

Pergolide drug products, which were used to treat Parkinson's disease, were voluntarily removed from the market because of the risk of damage to patients' heart valves. Last month, Bayer HealthCare pulled its Trasylol (aprotinin) injection, which is used to control bleeding during heart surgery, after a Canadian study suggested an increased risk of death.

Also, in March of this year, Novartis agreed to FDA's request that it discontinue marketing and sales of Zelnorm (tegaserod), which is used for the short-term treatment of women with irritable bowel syndrome. FDA's request was based on newly available information of an increased risk of heart attack, chest pain, and stroke with use of the drug.

"When we look at the data from our clinical trials, we can't find a correlation in terms of the time of drug ingestion and a cardiovascular event," says Novartis' Costa. "But, again, FDA acted on a signal and decided to pull it off the market. We continue to work with FDA, to go through the steps and bring some actual science into the discussion, because we think the drug would still benefit patients. We would like to bring it back to the market for those people who really need it."

Credit: Shutterstock

Credit: Shutterstock

To adapt to increased regulatory scrutiny, pharmaceutical companies are beginning to experiment with technologies that can reduce the overall costs and increase the effectiveness of compliance monitoring, says Ernst & Young's DeMarco. "It is getting more and more difficult and costly for companies to maintain their compliance status. And it is requiring money that is getting harder to spend."

In fact, this year many companies have unveiled aggressive plans to cut costs across their organizations (see page 30).

At the same time, some companies are also restructuring their business units to focus on pipeline-friendly R&D efforts. Toward that end, Roche recently created a new R&D organizational structure focusing on five disease biology areas: central nervous system, inflammation, metabolic disease, oncology, and virology. "Each area is supported by a cross-functional leadership team that has collective responsibility for guiding compounds from idea to market," according to George Abercrombie, president and CEO of Hoffmann-La Roche.

To gain an R&D edge, pharmaceutical companies have also entered into an increasing number of joint ventures and third-party relationships over the past couple years, Ernst & Young's Steinberg observes. "Five years ago, mergers and acquisitions were the stories that everyone focused on. Although these moves are still happening, the trend now seems to be more toward alliances—teaming up with another firm to share research costs or to help commercialize a product developed within a small biotech or small drug firm."

For example, during the past year, Bristol-Myers Squibb has entered into several partnerships designed to advance its pipeline. These collaborations include an agreement with AstraZeneca to codevelop and co-commercialize two late-stage diabetes compounds; an agreement with Pfizer to codevelop and co-commercialize apixaban, an anticlotting agent; and an agreement with Exelixis to discover and develop oncology compounds.

Roche's Abercrombie says the company "firmly believes in the value of collaboration in drug discovery" and has stepped up the number of such deals over the past couple of years as a way to gain an R&D edge. During the past two years, Roche has led the pharmaceutical industry in the number of clinical compound deals signed, according to Abercrombie. In acquiring and licensing innovation from others, the company is a partner to approximately 80 companies worldwide.

In mid-2007, Roche and Cambridge, Mass.-based Alnylam Pharmaceuticals entered into a major alliance in which Roche obtained a nonexclusive license to Alnylam's technology for developing RNA interference therapeutics. Also in mid-2007, Japan's Toyama Chemical and Roche entered into a licensing agreement for the worldwide research, development, and commercialization of Toyama Chemical's oral rheumatoid arthritis agent T-5224. Other recent collaborations have complemented the company's autoimmune disease business and oncology research pipeline.

This year, Roche has also continued to diversify into diagnostics technologies through a number of acquisitions, including the purchase of BioVeris, a Gaithersburg, Md.-based maker of health care diagnostics.

"The acquisition of BioVeris gives our centralized diagnostics business access to intellectual property that enables us to participate in the important area of clinical trials," says Lonnie Shoff, senior vice president of molecular diagnostics and applied science for Roche Diagnostics.

Through collaborations, mergers, or acquisitions, pharmaceutical firms seem to be focusing on deals right now that involve biotechnology. That's not surprising considering that sales in the biotech segment grew 16.8% to approximately $70 billion in the 12 months through June of 2007, compared with only 6–7% growth in the pharma market as a whole, according to IMS Health's Conmy.

In fact, pharmaceutical companies are aggressively competing for biotechnology deals in an attempt to snare potential drug candidates that may enrich their pipelines. In the process, they have been willing to pay premium prices for biotech firms even earlier in the development cycle, Ernst & Young's Steinberg notes.

Traditionally, companies have waited until biotech firms were further along in development before they would consider these kinds of deals, DeMarco says. "But now big pharma is willing to make riskier bets earlier on because they see these alliances as one of the only ways to supplement their R&D efforts. And virtually everybody needs the same thing," he adds. "It's a case of supply and demand."

For its part, Wyeth Pharmaceuticals has made "a very concerted effort to expand into biotechnology both in the discovery area and in the commercial area," according to Cavan Redmond, executive vice president and general manager of Wyeth BioPharma.

In discovery, Wyeth has been scoping out technologies related to second- or third-generation protein or monoclonal antibody technology. Most recently, Wyeth agreed to acquire Haptogen, an Aberdeen, Scotland-based company that has developed a number of technologies for discovery and optimization of protein therapeutics.

In addition, Wyeth has been making deals aimed at improving existing therapies, Redmond says. In February, the company signed two such deals, both in the hemophilia field. Wyeth will discover and develop recombinant Factor IX proteins with Paris-based Nautilus Biotech and collaborate with San Diego-based biomaterials company MediVas to improve delivery methods for recombinant hemophilia products.

"My belief is that we need to have anywhere from 30 to 50% of our R&D portfolio coming from outside the company—partnerships, licenses, or other activities," Redmond says. Wyeth "kind of grew up with partnerships, and it was the standard by which we ran our business," he says. "I think we are seeing more and more of these partnerships between biotech and large pharma in the industry as a whole now. That's where the fundamental shift is occurring."

Also growing is the emphasis on developing and marketing products prescribed by specialists, many of which are biotechnology products. This market, Conmy observes, is "growing at a higher rate than the primary care segment, which has been impacted more heavily by patent expiries, as well as by safety issues." In the 12 months through June 2007, for example, the specialist-driven segment grew 11%, contributing 63% to the overall market growth, according to IMS Health figures. In 2008, overall growth in the specialty-driven market is forecast to grow 14–15% to between $295 billion and $305 billion.

One of the most dynamic segments of the specialty market is oncology drugs. In the 12 months through June 2007, oncology drug product sales grew around 17% to reach $37.5 billion, according to IMS Health. That's down slightly from the 22% growth experienced in the 12 months to June 2006 but still strong, Conmy notes. She attributes the slowdown partly to a drop in the number of significant new products introduced in 2007 compared with the year earlier.

At the same time, payers are beginning to look more cautiously at how they reimburse for oncology, resulting in some moderation in reimbursement for unapproved or off-label indications for drug therapy, Conmy says. "In general, they want to ensure that the product works before it is prescribed, given that some of these therapies are relatively premium-priced."

IMS Health expects this trend to continue. Payers and drug manufacturers may agree to enter into payment-for-results arrangements, especially in the area of oncology.

Still, IMS Health predicts that oncology will become the largest single-market segment in terms of value, reaching between $65 billion and $85 billion by 2011 and growing at a 14-17%. rate. Growth will be fueled as an increasing number of patients gain access to chemotherapy and oncologic therapy and live longer, Conmy points out.

One new entrant to the oncology market in 2007 was Wyeth's Torisel (temsirolimus), a small-molecule drug for patients with advanced renal cell carcinoma. The company received FDA approval for the drug in late May and received a positive opinion from the European Medicines Agency's Committee for Medicinal Products for Human Use in September.

At Novartis, specialties are top priorities, too. With well-established business units devoted to oncology, neuroscience, and transplantation, Novartis has long favored specialties, Costa says. Although they are smaller volume products, they have the advantage of requiring reduced selling and marketing investments, he points out.

To accelerate further into specialties, Novartis recently set up a biologics group, which pulls expertise from different parts of the company to best deal with these products' unique technological, regulatory, clinical, and toxicological issues, Costa says. "We wanted to create a best-in-class group that understands biologicals and could do a great job in developing them and getting them to the market. In essence, we've created a biotech firm inside big pharma."

Through its generics business unit, Sandoz, Novartis plans to develop markets for follow-on biologics, which are generic versions of existing biological products, when regulations fall into place to allow for sales of these products. The company also plans to place greater emphasis on the development of biological compounds in its pipelines. As a result of those efforts, Novartis hopes that biologics will account for about 25% of sales in the next three years, compared with 4% now.

Like many in the industry, Wyeth's Redmond sees great value in investing in fast-growing specialty markets that include biotechnology products, oncology therapies, and anti-infectives, for example. "But despite the fact that this market segment looks new and shiny, what we don't want to do as an industry is shift all of our resources to specialties" at the expense of primary care developments, he cautions.

"When you look across companies' pipelines over the next five years, there are still many much-needed primary care drugs—for depression or other broad-based diseases—being developed," Redmond adds. "And if those drugs are successful, they could revolutionize the primary care market much like today's new entrants have revolutionized the specialty market."

For now, blockbusters—drugs that generate more than $1 billion in sales—continue to make up a big piece of the global pharmaceutical pie. But some industry experts question whether pharmaceutical companies can still bank on the success of future blockbusters. "The consensus seems to be that the blockbuster model, on which this industry has historically been largely based, may not survive. In short, nobody is sure whether there will be another $10 billion-plus product like Lipitor in the industry's future," Steinberg says, referring to Pfizer's cholesterol-fighting drug.

Companies may hesitate to invest in developing potential blockbusters, which can often fall prey to the increasingly cautious regulatory environment, Steinberg notes. Companies may opt to scrap a drug product before even attempting to clear the increasingly high regulatory hurdles, he points out. For example, Pfizer recently halted development of its much-anticipated cholesterol agent torcetrapib after an independent safety-monitoring board found a significant rise in mortality rates among patients taking torcetrapib along with Lipitor.

In a separate move in October, Pfizer said it would stop selling its inhaled-insulin product Exubera, which had potential blockbuster status. The company concluded that "further investment in this product is unwarranted" after Exubera failed to gain the acceptance of patients and physicians, according to Pfizer Chairman and CEO Jeffrey B. Kindler.

These moves show "just how treacherous this industry is," Steinberg says. "The stakes are so large in terms of R&D bets, and in the end, you don't know if you are going to have the next big success or the next big failure."

Despite these challenges, Conmy is among those who believe that blockbusters will continue to emerge. Although the specialist-driven products coming onto the market may start out with a more narrow application than the traditional blockbusters such as Vioxx, Bextra, and Lipitor, companies may find ways to apply them to multiple indications, thereby boosting sales, she notes.

"Already, there are a lot of products on the market that could be approaching the billion-dollar mark," Conmy says. "So I wouldn't say that this model is dead." In fact, IMS Health predicts that the number of blockbuster products will reach 108 in 2007 and total 115 in 2008.

Several products with big market potential have come onto at least part of the global market in 2007, Conmy notes. They include Novartis' Exforge (amlodipine/valsartan) hypertension drug, Merck's Janumet (sitagliptin/metformin) for the treatment of type 2 diabetes, Novartis' antihypertensive drug Tekturna (aliskiren), and two drugs from GlaxoSmithKline: Tykerb (lapatinib), a breast cancer treatment and Cervarix, a cervical cancer vaccine.

Steinberg observes, too, that Merck's human papillomavirus (HPV) drug, Gardasil, "was the focus of much attention and seems to have been very widely accepted." Furthermore, "Chantix (varenicline), Pfizer's smoking-cessation drug, has enjoyed a tremendous reception and is experiencing very strong growth," he notes.

Potential blockbusters set to enter the market in 2008 include UCB Pharma's Cimzia (certolizumab pegol) for treatment of Crohn's disease, Bristol-Myers Squibb's ipilimumab for treatment of melanoma, MedImmune's motavizumab for respiratory syncytial virus, and Wyeth's Pristiq (desvenlafaxine) for treatment of depression, according to Conmy.

Overall, IMS Health anticipates that 24-29 innovative new medicines will be launched in 2008, approximately 80% of which will be prescribed by specialists. These include three new oncology products for treating melanoma, prostate cancer, and acute myeloid leukemia.

"I think 2008 will be the year that technology starts to deliver on the promise of tomorrow," Wyeth's Redmond says. Products that have resulted from a great number of deals done over the past five years are just getting into the later stages of clinical development, he says. "So, products that were just dreams a few years ago may actually be nearing the market."

While working to maximize new product introductions, pharmaceutical companies are extending their reach into regions of the world with high growth in demand for pharmaceuticals.

Although the U.S. market is by far the largest global drug market—commanding 55.8% of the sales generated by the top 10 global markets—it is maturing and not growing as fast as markets in many emerging geographic regions, according to IMS Health. For the 12 months through June 2007, sales of drugs grew a whopping 15.9% to $12.0 billion in China and 10.9% to $9.1 billion in Brazil, compared with growth of 7.7% to $283.3 billion in the U.S.

The U.S. is expected to hold its top position through 2011, but several of what IMS Health calls "pharmerging markets" are set to increase their stake of the global pharma market. The pharmerging markets-fast-growing markets of a significant size with programs to provide increasing access to medicines-are Brazil, China, India, Mexico, Russia, South Korea, and Turkey, IMS Health data indicate.

Companies are eager to tap into markets like China, where 300 million people in the middle class have the means to afford medicines today, with more potential growth down the road, DeMarco points out. "Virtually every one of our clients—including all of the top 10 pharma companies—has a major investment strategy in place for China." Steinberg adds. "We are seeing a lot of plans for new manufacturing facilities, shared service centers, and R&D facilities." In fact, all of these emerging markets "are very high on almost all of our clients' radar screens," he says.

Earlier this year, for example, GlaxoSmithKline said it would build a drug discovery center in Shanghai within the next 10 years that will rank as one of its largest facilities worldwide.

Novartis recently unveiled plans to invest $100 million in a research center in Shanghai. The move "is another prime example of how important China is becoming to international drug development," says Nancy M. Gray, vice president of corporate development at Southern Research Institute, in Birmingham, Ala.

Asia is also becoming "a hotbed for manufacturing," says Gray, pointing to Novartis' move last month to invest $700 million to make monoclonal antibodies in Singapore by late 2012. Other companies, including GlaxoSmithKline and Lonza, have recently picked Singapore as the site of new biopharmaceutical plants.

Although multinational drug companies are lured by the large number of potential patients in these emerging markets, they need to be cognizant of the risks and challenges of doing business there. In these countries, companies are apt to encounter patent and intellectual property issues, as well as problems with counterfeit products, which are more prevalent, Gray says. Differing quality standards can create additional headaches for companies, she adds.

Companies are also likely to face a great number of potential competitors—including generics producers—that exist in some of these emerging regions, especially India, Steinberg points out.

Given the many pressures bearing down on drug companies, global growth of pharmaceutical sales is expected to moderate in 2008 from 6 to 7% in 2007 to 5 to 6%, totaling about $735 billion to $745 billion, according to Murray L. Aitken, senior vice president for Healthcare Insight at IMS Health, who announced the firm's 2008 forecast in a press statement.

Right now, pharmaceutical manufacturers face "the stark reality of a marketplace in transition," Aitken says. He applauds companies that are adopting business strategies that account for shifts in product values, capture growth in emerging markets, and capitalize on new opportunities. Into the future, the most successful companies will be those that continue to "reinvent themselves," Aiken says, and do so "at an accelerated pace."